This is true as union is our national sport. In regards to playing numbers - I think theres more males playing soccer in NZ than rugby though.
However you cant put it down just to us having more numbers. We do well in league too (I think were ranked no.1) and we got stuff all numbers. For the small population, we do outstandingly well in many sports despite our massive disadvantage.
It's more than just numbers, it's about first choice athletes too and the number playing at a highly competitive level too.
I was in Japan when the Waratahs played the Sunwolves and I was talking to an Aussie guy heavily involved in Sydney rugby and he was telling me that in Auckland alone there are two separate competitions BIGGER than the Shute Shield - which is the largest Union club comp we have on a city level).
Ultimately, athletes in NZ play Union if they have any talent and the stocks come from everywhere, whilst in Australia there are too reliant on the pampered private schools.
NZ does do well in League too of course, but their success in league has coincided with the increase in kiwis being represented in the NRL - there are now more kiwis playing in NRL teams than there are Qlders. Perhaps if we had half our Aussie players plying their trade in NZ we'd be more competitive?
I don't know, but ultimately Union has declined to a depressing degree in Australia - news of a potential breakaway competition that will go to war with the NRC confirms the code's status as the sick man of Australian rugby and frankly I suspect we will only become LESS competitive as the money runs out and the ARU unravels.